* Japan's corporate tax among highest in the world
* Govt seeks alternative revenue to offset revenue decline
* Abe needs balancing act between growth and fiscal reform
* Govt to issue key fiscal, econ policy outline later in
(Adds analyst's quote, more details)
By Tetsushi Kajimoto and Antoni Slodkowski
TOKYO, June 13 Japanese Prime Minister Shinzo
Abe unveiled a plan on Friday to cut the corporate tax rate
below 30 percent in stages to help pull the economy out of two
decades of sluggish growth and deflation.
Investors have been scrutinising whether Japan can
substantially lower the corporate tax rate - among the highest
in the world - to spur growth in the world's third-largest
economy. Abe also needs to strike a delicate balance between
stimulating growth and reining in snowballing public debt, twice
the size of its $5 trillion economy.
The corporate tax cut is a major issue to be included in the
government's key fiscal and economic policy outline, which will
be finalised around June 27 along with a detailed "growth
strategy" of structural reforms.
"Japan's corporate tax rate will change into one that
promotes growth," Abe told reporters, adding that he hoped the
lower burden on companies would lead to job creation and an
improvement also for private citizens.
He also said the government would make sure that alternative
revenue sources were secured to offset a decline in corporate
tax revenue. He did not elaborate.
The government said in its draft economic and fiscal policy
outline it would decide on a concrete plan by year's end to
secure a "permanent revenue source" needed for corporate tax
cuts, such as by broadening the tax base.
An alternative revenue source must be secured permanently so
that Japan can achieve its aim of bringing its primary budget
balance - excluding new bond sales and debt servicing - into the
black in the fiscal year to March 2021, it said in the draft.
The government reiterated it would decide by year-end
whether to go ahead with its plan to raise the sales tax to 10
percent in October 2015. The national sales tax rose to 8
percent from 5 percent on April 1 in a bid to fix the public
Japan's corporate tax rate is nearly 36 percent for large
companies operating in Tokyo, among the highest in the
Private-sector members of the government's top economic and
fiscal council have proposed cutting the rate to 25 percent
eventually to put it in line with international standards.
Japan's corporate tax rate ranks second after the United
States among the 34-member OECD economies, with countries such
as Britain, Italy, Canada below 30 percent.
In Asia, China and South Korea impose a corporate tax around
25 percent and Singapore puts it at 17 percent.
The government is hoping to see lower corporate tax rates
lure foreign direct investment (FDI) and spur capital spending
at home, rather than boosting cash reserves at firms.
"But it would take time for such an effect to emerge in the
economy," said Hiroshi Watanabe, senior economist at SMBC Nikko
"Corporate tax cuts alone would not be a panacea. Japan
needs to break other barriers such as language and higher
business costs, including electricity, to spur FDI."
The finance ministry and ruling party tax panel say that any
revenue lost in a tax rate cut should be offset by bringing in
alternative fixed revenues, rather than counting on any increase
in tax revenue brought by higher economic growth.
Each percentage point of tax cuts would reduce government
revenue by about 470 billion yen ($4.61 billion) a year,
according to the finance ministry.
At the same time, only 30 percent of all Japanese firms pay
corporate income tax, so fiscal hawks want many more brought
onto the tax rolls to offset a cut in the tax rate.
Most loss-making firms in Japan are exempted from paying
corporate tax and companies can defer losses over several years,
making it easier for them to avoid paying taxes.
($1 = 102 yen)
(Additional reporting by Yuko Yoshikawa; Editing by Chang-Ran
Kim and Nick Macfie)